What are Cross Border Payments?

January 18, 2018

What is ClickPesa

At the core, ClickPesa is a service. ClickPesa service is to facilitate transactions. A transaction is an activity affecting a account / m-wallet and performed by a request. In summary a transaction is a record of movement / exchange of value such as money between two or more parties. Money exchanges hands for a number of reasons, such as a purchase of goods and services, donations, supplier payments, salaries etc. Traditionally physical money exchanged hands, however as businesses became global and digital so did the need for digital money and global digital payment solutions.

ClickPesa and Cross-Border payments

International payments have served as the engine enabling cross-border trade and investment, and have been instrumental in the emergence of today’s global economy. International payments involve a substantial list of requirements- a global network of trusted parties, regulatory and technical infrastructure and liquidity. This has resulted in friction on the payment process and made banks natural owners of the cross-border payments market. Margins have typically been robust in international payments; and occasional pressures have weighed on margins, but not to the point where drastic measure have been taken similarly to what can be observed in domestic payments. Although cross-border flows represent only one-sixth of total transaction values, international payments revenues total up to $200 billion globally, split roughly evenly between transaction fees and foreign exchange (FX) revenues. This equates to 27 percent of global transaction revenues and is increasing by 6 percent annually

ClickPesa enables organizations in Tanzania to facilitate faster and cheaper international payments. ClickPesa's cross-border payment platform provides customers access to real time electronic rates and tools to execute cross-border payments requests.

How can ClickPesa save you money and time on international transactions?

ClickPesa has a vast partnership network of financial institution and FX brokers across the world which provide access to wholesale exchange rate enabling ClickPesa to provide the most competitive market rates at local levels for currencies. ClickPesa also maintains local bank accounts with partners in over 20 countries, which help to receive and make payments in a secure and efficient manner. This helps guarantee competitive rates and speed of delivery to all locations we operate in.

What is the innovation on the horizon?

There has been a lot of talk recently on the Bitcoin revolution and the technology behind Bitcoin referred to as Blockchain. Blockchain is the innovation, where the block refers to digital information and the chain simply means public database. Blockchain is in short digital information (i.e.Block) stored on public database (i.e.Chain).

From the beginning of Bitcoin, the vision for most blockchains has been to enable decentralized peer-to-peer (p2p) payments. Whereby all of the steps, from payment instruction to clearing, to settlement and foreign exchange, can be enclosed into a single atomic transaction that executes in real-time. However this has proven to be challenging. ClickPesa has spent the last two years exploring blockchain protocols designed for payments such as Stellar, Ripple’s xRapid and discovered three fundamental problems to be solved in order gain mass adoption.

1) Digital asset / Currency - Value and volatility

The problem with the digital asset is the lack of guarantee on the value of the asset. Questions emerge about who controls the exchange rates for digital currencies, bringing fears of foreign exchange market manipulation and concerns over liquidity provision.

Commercial bank deposits comprise the largest form of money by value in an economy. Consumers hold these balances as a means of settlement between each other, underpinned by confidence in money as a store of value and medium of exchange. Normally, balances held at commercial banks can be exchanged on demand for banknotes. This guarantees direct convertibility into a central bank liability, which builds more trust in the value of this money (bank deposits) – an important feature for a widely accepted medium of exchange.

2) Acceptability / Trust

In order to create a widely adopted and accepted asset. The asset has to be widely accepted and available. Every shopper should be able to spend and every merchant should be able to accept your transaction. Merchants are unlikely to accept or trust a volatile asset which is not easily convertible into fiat. Digital currencies issued by a central bank (i.e. a stable coin) can solve this problem.

3) Complexity

Traditional method of acquiring a cryptocurrency is very complex. First a user has to acquire cryptocurrency to buy a popular coin such as Bitcoin and Ethereum on an exchange which is used as main currency to buy smaller coins (altcoins). A user has to then acquire a crypto wallet, protect their private key, send the tokens to the wallet, pay to a public key… This will not work.

To make a cryptocurrency easily accessible, one needs to abstract these complexities and provide a seamless and familiar experience. Central bank digital currencies (CBDC) could cut the process of cryptocurrency acquisition process. Alternatively one could manage the process for users. Users care about the bottom line and that is to see the right balance in their account. If the user finds it complicated to acquire assets, its adoption will fail.

The conclusion

The mass adoption of Bitcoin shows that the world has an appetite for innovation in payments. Whether it is Bitcoin or a stable coin can offer tangible improvements to financial services by increasing security and reducing friction, particularly in international payments. Generally, more transparency, traceability and security can promote trust between counterparties and help accelerate financial inclusion.